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Students get serious about financial literacy

July 14, 2014

Phoebe Buffay refers to her "4-0-wunk," rather than 401(k), in the final season of the hit TV show Friends. The line got big laughs, but financial literacy—or in Phoebe's case financial illiteracy—is a serious subject.

Corporations and colleges are beginning to recognize how crucial it is for students and young adults to learn basic financial and economic principles—for themselves and also society. It's never too early to start saving, and the lessons learned as a child or teenager can last a lifetime.

"It's a gigantic battle many people are fighting," said Nate Prosser, a Vanguard manager and one of the leaders of My Classroom Economy, a financial education program created at Vanguard and based on concepts by award-winning teacher Rafe Esquith. "The more people that can help support the mission, the more effective it will be going forward."

My Classroom Economy, which is free and caters to students from kindergarten through 12th grade, offers a way to teach young people the concept of financial responsibility and the rewards that go with it. So does the book The Missing Semester, so titled by co-authors Gene Natali Jr. and Matt Kabala, because its lessons aren't usually taught in high school or college.

"Money 101 may be the single subject that impacts 100% of our nation's students," Mr. Natali said. "Yet too often, students are given a diploma and a handshake and sent into the world of financial responsibility without having been taught this subject. Our money mistakes can have severe consequences over a lifetime. You keep reading the headlines and they're really depressing: 'The American Dream is Out of Reach,' 'Student Debt Crisis.'

"You're basically being told if you're a young person, you might as well throw in the towel. Don't! You have a great deal more control over your financial future than you've likely been taught. We want to inspire readers and young folks to recognize that their financial choices have consequences—positive as well as negative."

Healthy doses of discipline

Mr. Natali said one of the best ways for young people to learn personal finance is through their peers. For the last two years, he's moderated a student-led panel on financial literacy with University of Pittsburgh business professor Jay Sukits.

"I was a finance major in college and learned how to price derivatives, but not how to manage my student loans," said Matt Sauers in his keynote address held at the university in April.

Mr. Sauers, a 2013 University of Pittsburgh graduate who is now an analyst at a major bank, has since created a three-pronged personal financial plan. He's paying down his student debt at a much faster rate than required, planning for retirement, and building wealth. Of course, Mr. Sauers wouldn't be able to achieve his goals without healthy doses of discipline.

"In my hiring class, I was surrounded by colleagues who immediately bought BMWs, were going to steak dinners in the middle of the week, and running up hefty bar tabs," he said. "It came down to declining those dinners and instead making spaghetti. Little things like that, they go a long way. I know it's hard to say no sometimes when all your friends are going out and they're spending enormous amounts of money. Just because one can pay for it, does not mean that one should."

Time to get inspired

Delaying gratification, avoiding debt, and saving are central to the mission of My Classroom Economy and The Missing Semester. The 16 panelists related story after story about family or friends who shouldered too much debt too early in life.

"I had a girlfriend who just graduated high school," said Dan Lee, a finance major at Robert Morris University in Pittsburgh. "As a reward to herself she went out and bought a new car. It was $25,000. When the freshness and coolness of the new car went away, she was stuck with this $400 a month car bill and that started taking a toll. She's making decent money for a kid our age, but going to school, she ended up having to forfeit on the car and the bank took it back. It killed her credit, and now she's in a world of hurt."

Even well-intentioned spending—especially on higher education—can have costly consequences. The panelists discussed the risks of attending a college beyond their means, picking majors that may require the additional expense of graduate school, and the challenges of paying back pricey student loans.

"The biggest mistake I saw was a family friend who accepted a huge student loan to go to a private college and pursue a field that didn't allow her to cover those costs and required continued education," said Kaitlin Hudok, a sophomore at West Virginia University. "She's in her late 30s now, still living at home, with massive debt. So what I learned was I needed to look for scholarships at public schools, research the job market, and expect realistic salaries. Because of that I will graduate with no student debt."

Vanguard's Mr. Prosser, for one, said he was inspired by the students and their desire to get off on the right foot financially and avoid the missteps of their peers.

"In order to invest and have financial freedom and success, the most fundamental thing is to understand delayed gratification and spending less than you earn," he said. "It validates the work we're doing with My Classroom Economy and is why The Missing Semester is so valuable."

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